How Andrew Chung won New York City’s warehouse race
The Innovo Property Group founder bet on the industrial sector’s historic shift before anyone else
Like a shipping container precisely packed to fill every last cubic inch, Andrew Chung’s new Bronx warehouse is squeezed in between the Westchester Creek and the tangled Bruckner interchange.
At nearly 1 million square feet — think a Midtown office building turned on its side — 2505 Bruckner Boulevard is the hottest thing in real estate today: a multi-story urban warehouse that serves as a key link in the modern supply chain.
It has helped make Chung the face of warehousing in New York, a sort of real estate soothsayer who saw a big shift in the industry before anyone else and got in on the ground floor.
“When I get calls from people outside New York looking at one of these types of deals and they ask me who I know and I mention Andrew, he’s like an oracle,” said Jay Neveloff, head of the real estate practice at Kramer Levin.
“He’s been on the cutting edge,” said Marty Burger, president of Silverstein Properties.
Chung’s rise to star status was as sudden as the boom in warehousing. Not too long ago, industrial was real estate’s sleepiest asset class — a business of dusty floors, rolling steel doors and faceless buildings on cheap land.
But the surge in e-commerce made people rethink logistics-based real estate, particularly last-mile distribution centers that are key to same-day delivery.
Six years ago, Chung had never owned a warehouse. But his Innovo Property Group moved early and aggressively, inking a string of head-turning deals.
Now he’s making another unexpected move. In December, Innovo struck a deal to pay $855 million for the HSBC office building in Midtown — a 30-story tower at 452 Fifth Avenue that has a large vacancy coming up — as questions persist about the future of the office market.
Chung’s stamp on the deal hints that he may once again see something coming.
Man in the arena
Chung, 49, is a New York City native who attended Bronx High School of Science, a competitive public school about a 30-minute drive from his Throggs Neck warehouse.
After graduating with an economics degree, he got a job at the private equity giant Carlyle Group and began climbing the ranks, ending up in charge of the company’s New York City real estate operation. During that time, Carlyle partnered with some of the industry’s canniest operators.
The company teamed up with the Chera family’s Crown Acquisitions to buy a majority interest in the retail at 666 Fifth Avenue from Kushner Companies for $525 million in 2008. That same year it joined with Ben Ashkenazy to buy 650 Madison Avenue, a 27-story Plaza District office building, for $680 million. And it invested with Gary Barnett’s Extell Development on the southern piece of the West Side Riverside complex, formerly owned by Donald Trump.
But for an ambitious person like Chung, writing checks to developers on such projects can be frustrating. The partners work together but when payday arrives, the developers walk away with the lion’s share, thanks to the promote and other incentives.
“It doesn’t take a long time to realize he can be making a lot more money being in that position, collecting the promote,” said one dealmaker familiar with Chung’s business.
In the early 2010s, Carlyle’s biggest moves were on the sell side. It doubled its money on 650 Madison Avenue, selling the building in 2013 to Crown Acquisitions and Highgate Holdings for $1.3 billion. Also that year, Carlyle and Extell sold one of the Riverside sites to Elad Group and Silverstein Properties for $160 million. Two years later, they sold another site there to GID Development Group for $410 million.
Chung’s stock was rising and in January 2015 Carlyle named him a partner. Eight days later, after 14 years at the company, he left to start his own firm.
After thinking for a while, Chung decided to focus on logistics. The sector, he concluded, was about to take off.
The rise of warehouses seems to have been inevitable, but it wasn’t when Chung struck out on his own. Mail-order customers were happy to get their packages in a week or so, and Amazon’s annual revenue was $107 billion. Today, it’s $458 billion and delivery times longer than two days almost seem quaint.
That year, 2015, warehouse rents in the outer boroughs were shy of $17 per square foot, according to Cushman & Wakefield. They’ve since grown nearly 25 percent, and for prime spaces like new multi-level distribution centers, rents can be as high as $40 per square foot.
Chung, who declined to comment for this story, said at a 2018 industry panel in Queens that to capitalize on the push for quicker deliveries, he needed space in the boroughs.
“Amazon Prime went from next-day delivery to same-day delivery, and now they want two-hour delivery,” he said. “In order to do two-hour delivery, you can’t service from New Jersey anymore. Long Island City is actually the most ideal place.”
Chung stands out not only for being an early adopter, but for paying prices that others couldn’t ignore.
For its first deal in Long Island City, Innovo teamed up with Westbrook Partners in 2016 to pay $195 million for a 656,000-square-foot warehouse at 24-02 49th Avenue — at the mouth of the Midtown Tunnel — from Ruby Schron’s Cammeby’s International.
The property wasn’t sexy. The building was leased to the New York City Housing Authority, which was paying $9 per square foot — far below the market rent. The new owners negotiated a new long-term deal with the agency.
Then, three years after the purchase, Chung went all-in. He bought out Westbrook’s majority stake in a deal valuing the property at $438 million. It is still among the largest deals ever in Queens.
Between 2016 and 2021, Chung bought seven properties in Queens and the Bronx for more than $800 million.
One deal in particular highlights just how rapidly the market is moving. In the South Bronx, Chung paid Baldor Specialty Foods $54.25 million in 2019 for a refrigerated warehouse at 511 Barry Street. He leased it to Amazon and then sold it last year for $119 million to CenterPoint Properties, the industrial investor owned by LaSalle Asset Management and the California Public Employees’ Retirement System.
One key to Chung’s business is that he will pay top dollar for sites, often at numbers others can’t make sense of. People familiar with his approach said Chung just has greater confidence than many of his competitors in where the market is going.
Whereas others may come to a deal with a preferred return in mind and work backward to see if rents will meet that hurdle, observers say Chung doesn’t appear concerned with squeezing every last penny out of a deal.
The thinking is, if he overpays somewhat on a property, it may diminish the profit but as long as rents keep climbing, it won’t make or break the investment.
Case in point: the massive Bronx development.
Innovo bought the former home of the Whitestone Cinema from Extell for $75 million in 2017. Just 24 months earlier, Barnett had paid only $41 million for it.
A source said no one had come close to offering what Chung paid for the property, where Innovo is close to finishing construction on a two-level warehouse.
“This is the only Class-A distribution building of its size available in the marketplace,” said Pinnacle Realty’s David Junik, one of the more active brokers in the last-mile market.
Ask people in real estate about Chung’s business and they are likely to tell you he is backed by Hong Kong’s Nan Fung Group. (This fact is touted prominently on Innovo’s website, a rarity in a world where capital sources are usually closely guarded secrets.)
But ask those same people about Nan Fung and the only thing they are likely to say is that it backs Chung — a kind of absurd circular description.
Nan Fung was founded in 1953 by Dr. Chen Din Hwa as a textiles company and grew into a conglomerate with real estate and financial services arms.
It has developed a number of notable residential projects in Hong Kong such as the Mount Nicholson condo building in Victoria Peak, where a buyer in November reportedly paid $82.1 million for a penthouse that broke Asia’s price-per-square-foot record.
Five or six years ago, the company started looking to diversify its real estate business. In 2017 it paid $3.2 billion to buy a large development site near Hong Kong’s Tak Kai airport where it plans to build 1.9 million square feet of office and retail. Two years later it launched a Boston operation to invest in life-sciences real estate in the U.S.
“As the Chinese market evolved, they’ve come to understand that it’s probably more akin to their style to lower development risks and exposure by building a larger stream of recurring income,” said Stephanie Lau, a senior credit officer at Moody’s Investors Service.
The partnership gives Chung a deep pocketbook of patient capital. Nan Fung had nearly 16 billion Hong Kong dollars (about $2 billion U.S.) in cash as of November, per a Moody’s credit report. It has an investment portfolio valued at roughly $4.3 billion and large undrawn credit facilities — plenty to cover its short-term debt and capital needs, according to the report.
“It has a very long operational track record and it’s a known family name,” Lau said. “They’ve got a strong balance sheet and they’ve got very good access to financial markets.”
Turn to office
Chung is certainly not the only one who got ahead of the industrial curve.
Dov Hertz of DH Property Holdings, Joe Sitt’s Thor Equities and Scott Rechler’s RXR Realty have all developed warehouses in recent years. All have large deals with Amazon.
Sitt and Rechler, though, had already established themselves in other areas (Sitt primarily in retail, Rechler in office) before getting into industrial, so they’re not synonymous with the asset like Chung. Hertz, longtime right-hand man to Extell’s Barnett, launched his business a year after Chung and is considered his closest competitor.
Now, Innovo’s deal for the HSBC building brings it into new territory.
Although it’s not Chung’s first foray outside logistics — he owns a retail condo in Chinatown and had checked out a Brooklyn office building — it raised eyebrows. The 1980s-era, 865,000-square-foot building at 452 Fifth Avenue is mostly occupied by HSBC, which intends to downsize from roughly 550,000 square feet when the lease rolls in 2025.
A source familiar with the property said Chung moved aggressively and put down a $30 million deposit.
Market experts see Innovo’s move into office as a natural progression.
“He was ahead of the curve in the world of industrial in the boroughs,” said Eastdil Secured’s Gary Phillips, who led the team that marketed the HSBC building. “He views office right now as an opportunity to get in ahead of the pack as well.”